Are there any laws in Illinois that regulate how we post checks for payment?

You are correct that federal law does not require any particular check posting order, and Illinois law is equally permissive (provided that the bank complies with its own deposit agreements). However, as we discuss below, the FDIC has issued guidance that seems to discourage the use of high-to-low posting orders (without explicitly condemning the practice).

As to Illinois law, Section 4-303(b) of the Uniform Commercial Code (UCC) permits banks to pay checks in any order: “items may be accepted, paid, certified, or charged to the indicated account of its customer in any order.” 810 ILCS 5/4-303(b).

The Illinois Appellate Court for the First District has held this to be true as to posting checks, even if the high-to-low order solely benefits the bank and results in the bank customers’ incurring more overdraft fees than if the smallest checks were posted first. Hill v. St. Paul Fed. Bank for Sav., 329 Ill.App.3d 705 (1st Dist. 2002).

Recently, an Illinois federal court at the trial court level upheld the Hill decision as a defense in a case involving debit card transactions that a bank reordered from high to low. Schulte v. Fifth Third Bank, 805 F.Supp.2d 565, 579 (N.D. Ill. 2011).

As to federal law, neither Regulation DD nor Regulation E requires banks to adopt any particular posting order of checks, and they do not require banks to disclose the posting order. See, e.g., Hill v. St. Paul Fed. Bank for Sav., 329 Ill.App.3d 705 (1st Dist. 2002). With that said, the federal banking agencies have released a great deal of guidance and inquiry into posting order and overdraft fees in general:

In 2005, the federal banking agencies released joint guidance on overdraft programs, which does not suggest that banks use any particular posting order, but states that it is a best practice to “[e]xplain impact of transaction clearing policies. Clearly explain to consumers that transactions may not be processed in the order in which they occurred, and that the order in which transactions are received by the institution and processed can affect the total amount of overdraft fees incurred by the consumer.” Interagency Guidance on Overdraft Protection Programs, 70 Fed. Reg. 9127, 9132 (February 25, 2005), FDIC Press Release 11-2005.

The FDIC’s 2010 Overdraft Payment Supervisory Guidance states that “clearing items in the order received or by check number” is an “appropriate” procedure that would avoid “maximizing customer overdrafts and related fees through the clearing order.” FIL 81-2010 (November 24, 2010).

The FDIC’s FAQ on the overdraft guidance fleshes the concept out, stating that checks “should be processed in a neutral order that avoids manipulating or structuring processing order to maximize customer overdraft and related fees. Examples of a neutral order include order received, check number, serial number sequence, or other approaches when necessary based on sound business justification.” FDIC Overdraft Payment Program Supervisory Guidance Frequently Asked Questions, Part III, Question 4.

Also note that overdraft fees are a hot topic right now; the CFPB recently launched an inquiry into overdraft fees, and the agency has stated that one of the issues it will be looking at is posting orders (“transaction re-ordering that increases consumer costs”).